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Transmission Effects of Exchange Rate on Foreign Institutional Investments in India

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Transmission Effects of Exchange Rate on Foreign Institutional Investments in India
2010 International Conference on E-business, Management and Economics IPEDR vol.3 (2011) © (2011) IACSIT Press, Hong Kong

Transmission Effects of Exchange Rate on Foreign Institutional Investments in India
Dr.Raju.G
Professor and Head, Department of Management Studies, GCET Greater Noida, U.P, India-201308. e-mail: drrajug@yahoo.co.in

Santosh Kumar
Lecturer, Finance and Accounts, Amity Business School, Noida, India e-mail: santosh.frm@gmail.com

Tanveer Shahab
Lecturer, GEMA Institute of Management, New Delhi, India e-mail: tanveershahab@gmail.com

Tavishi
Lecturer in Economics, Amity Business School, Noida, India e-mail: tavu.tavishi@gmail.com

Ashish K Khatua
Senior Manager, Business Analysis, Tata Steel Ltd, Jamshedpur, India. e-mail: silu10@gmail.com
Abstract-The ever increasing number of FIIs (Foreign Institutional Investors) and their investments from various countries in various denominations in the last ten years has drawn the attention of policy makers and investors. This paper attempts to investigate the direction and dynamic interaction between four major exchange rates viz. Dollar, Euro, Pound and Yen and net FII flows in India using daily data of exchange rates and net FII flows. The direction of relationship is also computed by using Granger Causality Test and the dynamic interaction is quantified by VAR results and Impulse Response Function at six lags. Results show that dollar exhibit bi-directional relationship whereas pound and yen have one sided influence on net foreign institutional investments. Further it is also evident from Impulse Response Function that exchange rate shocks die out in two days whereas net FII flows contain it for five to six days. On the other hand regression results validate that the net FII flows are positively correlated to rupee appreciation in dollar and yen and negatively correlated to rupee appreciation in pound and euro, but euro have insignificant influence in Indian economy. Key Words: Impulse


References: [1] Badhani K. N, “Dynamic Relationship among Stock-Prices, Exchange Rate and Net F.I.I. Investment Flow in India”, Paper presented at The Conference on Research in Finance and Accounting, IIM, Lucknow, December 17, 2005. Stavarek Daniel, “Stock Prices and Exchange Rates in the EU and the USA: Evidence of their Mutual Interactions”, Czech Journal of Economics and Finance, 55, 2005. Kumar Sundaram,” Investigating causal relationship between stock return with respect to exchange rate and FII: Evidence from India”, MPRA Paper No. 15793, June 2009. Rahman Md. Lutfur and Jashimuddin, “Dynamic Relationship between Stock Prices and Exchange Rates: Evidence from Three South Asian Countries”, International Business Research, Vol. 2 no.2, April 2009. Mishra, Alok Kumar, Swain and Niranjan Malhotra, D K, “Volatility Spillover between Stock and Foreign Exchange Markets: Indian Evidence”, International Journal of Business , July 1 2007 [2] [3] [4] [5] 275
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